A system and method are described below for encoding interactive low-latency video using interframe coding. For example, one embodiment of a computer-implemented method for performing video compression comprises: logically subdividing each of a sequence of images into a plurality of tiles, each of the tiles having a defined position within each of the sequence of images, the defined position remaining the same between successive images; detecting motion within the sequence of images occurring at each of the positions of each of the tiles; and encoding each tile within each image of the sequence of images using a first compression format or a second compression format, wherein the frequency at which a particular tile is encoded according to the first compression format across the sequence of images is based on the detected amount of motion at the position of that tile across the sequence of images.